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Inventory Shrinkage and Education Costs

No one doubts the financial pressure bearing down on school districts across the country. We face a steady stream of stories about teacher layoffs, oversized classrooms and poor results. We’d like to draw attention to an aspect of the crisis near and dear to us: inventory costs. With school systems hard-pressed to perform even the most basic functions, who’s watching over inventory? Apparently, in Philadelphia, the answer is no one. A recent article in Metro Philadelphia reports that an audit of 11 schools found an inventory shortfall of almost $200,000. This isn’t a minor shrinkage problem, it’s a gaping hole filled with missing and stolen computers, pencils and microscopes. You only have to ask the district’s principals and teachers how they could use a portion of that $200,000 to improve their schools. The problem in Philadelphia, and dare we say elsewhere, isn’t simply that students or others are making off with valuable equipment. Much of the responsibility for the problem rests on the shoulders of administrators who fail to maintain adequate records. To its credit, Philadelphia has tried to address the problem with a new computerized inventory system. Unfortunately, the system is flawed. For one thing, it doesn’t account for deletions of inventory items. As City Controller Alan Butkovitz put it: “Allowing undocumented deletions of equipment in the inventory database increases the chance for thefts to occur.” Here are some other aspects of the story:

• 67 percent of school district inventory auditors could not be located.
• Vulnerable items included musical instruments, office furniture, laptop computers, petty cash, even a snow blower and a sewing machine.
• Auditors can’t account for $5 million in student activity funds.

Now, we don’t mean to pick on Philadelphia. We mean to pick on poor inventory control systems and practices. A small fraction of the $200,000 shrinkage in the Philadelphia school district could pay for improved systems and equipment. Barcode readers are cheap and robust inventory tracking and management systems are available at a relatively low cost. Colleges are not immune to poor inventory control practices either. Virginia State University, a land-grant state institution, is currently experiencing booming attendance. Unfortunately, VSU is also experiencing epic inventory shrinkage challenges. It recently documented 30 pages of missing inventory items, including 350 laptops, 17 microscopes and four pianos! The school originally put the cost at $1.2 million. That’s a lot of tax money down the drain. But we think the real kicker is that the university was subsequently able to find over $400,000 of missing inventory. This indicates that chalking the entire problem up to theft absolves management personnel from addressing basic record-keeping problems. It’s not all horror stories. The St. Lucie County School District in Florida has 35,000 students. They contemplated the outsourcing of their warehouse operations, but instead installed a modern system and tracking equipment. They estimate savings of $300,000 in one year and they have a very high accuracy rating. Obviously, some districts are getting it right. What does it take to “get it right?”

• Automated inventory tracking of equipment and supplies
• Regular inventory counts and consistent cycle counting
• Standardized inventory control systems that don’t allow unaudited deletion of items
• Trained personnel equipped with modern devices such as remote bar code readers or mobile computers
• The commitment of management to implement effective practices and to reduce shrinkage
• Integration of system information across the accounting application space covering inventory, purchasing and accounts payable

With tax receipts down and student numbers up, efficient inventory management is not only a proven way to save money; it’s a moral imperative to redirect money from inventory replacement to the educational concerns of parents, teachers and students.